* Bunds rise as Greece resumes tough restructuring talks * Safe-haven demand to support German 2-year auction * Portugal seen as next in line, offers sentiment bellwether By William James LONDON, Jan 18 (Reuters) - German Bund futures rose on Wednesday, supported by demand for low-risk assets as Greece resumes the difficult task of negotiating writedowns with private creditors in a bid to avoid a costly default. Greece's last-ditch efforts to seal a deal with bondholders -- needed to reduce its debt and secure vital aid funding -- were set to keep Bunds near record highs as fear grows that failure could push the country into a disorderly default. Talks between private sector creditors and officials resume on Wednesday in an effort to break the deadlock over how much of a loss investors are willing to take on their loans to Greece. "Everything is about Greece today... over the next three days these negotiations will drive the market," said Achilleas Georgolopoulos, strategist at Lloyds Bank in London. Any sign of a voluntary agreement would probably cool some of the safety bid for German debt, Georgolopoulos said, while tensions were likely to stay high if no deal is struck before next week's regular meeting of euro zone finance ministers. Bund futures rose to 139.89, up 21 ticks on the day and within half a point of the record-high 140.23 set last week. A German auction of two-year debt later in the session will test how willing investors are to buy paper which carries an ultra-low yield but is perceived to be a safe haven owing to its high liquidity and the backing of the robust German economy. "You could argue that there's not much value at these yield levels, but I think two-year (yields) are going to zero and so you've still got about 15 basis points to get your hands on," a trader said. The two-year German yield was flat at 0.18 percent, within a few basis points of the record low around 0.14 percent. PORTUGUESE BELLWETHER Portugal will issue short-term treasury bills. Portuguese bonds have come under heavy pressure since Standard & Poor's cut the sovereign's credit rating to 'junk' on Friday, forcing some index-tracking investors to sell. Portuguese 10-year bond yields were 15 basis points higher on the day at 14.47 percent, 12.68 percentage points above those on the equivalent German debt. Despite the forced selling, the bill sale, which is mainly supported by resilient demand from local banks, was expected to go smoothly. Nevertheless, the performance of Portugal's bonds is seen as an important benchmark of whether markets believe a writedown on Greek debt is a one-off, as policymakers have been at pains to stress, or a template for other euro zone stragglers. "There are now broader concerns over whether Portugal will eventually need haircuts to be applied on its debt," Rabobank strategists said in a note. "As a minimum it would currently appear extremely unlikely that Portugal will be able to return to the bond markets in 2013, as was originally envisaged."

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